U.S. Prime Money-Market Funds Pull $8 Billion From Deutsche Bank

By Radi Khasawneh and Alberto Fuertes -
Nov 11, 2011

The biggest U.S. prime money-market
funds cut their investments in Deutsche Bank AG (DBK) by $8.1 billion
in October, the largest drop among 35 of the largest banks in
Europe, the U.S., Japan and Canada, Bloomberg analysis shows.

The amount of Deutsche Bank short-term obligations held by
the eight biggest U.S. funds eligible to purchase corporate
debt, which included offerings from Fidelity Investments,
JPMorgan Chase & Co. (JPM) and BlackRock Inc. (BLK), declined by 56 percent
to $6.3 billion from Sept. 30 to Oct. 31, according to monthly
portfolio updates compiled by Bloomberg and published in today’s
Bloomberg Risk newsletter.

Deutsche Bank Chief Financial Officer Stefan Krause said
that money funds aren’t a major source of funding on an Oct. 25
earnings call. Krause estimated that the funds provided 3
percent of the bank’s total funding.

Germany’s largest bank said it increased its discretionary
unsecured wholesale funding to 135 billion euros from 113
billion euros between the end of June and the end of September,
according to a presentation given by Krause at the time. The
bank has increased its use of transaction banking and retail
funding since the end of 2007, according to the presentation.
Transaction banking represented 12 percent of its 1.1 trillion-
euro funding at Sept. 30, up 5 percent from the end of 2007.

“What you are seeing is a domino effect on European banks,
which have sequentially been affected as European contagion has
spread,” Kinner Lakhani, senior bank analyst at Citigroup Inc.,
said in an interview. “The key point is that Deutsche Bank is
likely to have been much better prepared.”

Dollar Funding

Lakhani said the bank’s global transaction services
business provides dollar funding as an alternative. In contrast,
the main French banks, which also experienced money-market fund
outflows, had large U.S. dollar financing operations.

Deutsche Bank spokesman Armin Niedermeier declined to
comment further on the bank’s money-market funding changes over
the month. “We can’t reconcile these numbers,” he said in an
e-mailed statement.

French banks saw their money-market funding decline 25
percent on the month to $16 billion. The drop followed a 44
percent decline in September. Over the last twelve months the
eight big money funds have pulled 78 percent, or $61.3 billion,
of their funding from French banks.

Money funds have cut investments in Societe Generale by $15
billion over the last 12 months, according to the Bloomberg
survey. Dollar funding pressures have led the bank to announce
it was planning to sell assets and exit some businesses.

Societe Generale expects 750 million euros of losses as a
result of these actions, according to a presentation. The bank
declined to comment further.

The figures include repurchase agreements that are backed
by government collateral. Fidelity, which cut its holdings in
Deutsche Bank by $5.1 billion across three funds in October,
said it was “very comfortable” with its current investments in
European banks.

“Our money-market mutual funds remain well-positioned in
light of the continued risk and uncertainty unfolding across
Europe,” Adam Banker, a spokesman at Fidelity, said in an e-
mailed statement.